Mortgage Rate Hike

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Here's Mother Nature...

...next comes Mr Margin. 

Yesterday Canadian mortgage lenders hiked their posted lending rates up 10 to 30 beeps depending on the loan. 

The last "posted" rate move was 5 months ago of 10 bps down and 10 months before that it was 10 bps down. 

A fearful symmetry is at work with all eyes on the bond markets. In any event we have had ZIRP for well over 4 years so this hike in retail rates is welcomed by savers to the dismay of borrowers and reflects perhaps a twitch of restlessness in the herd. Or maybe it's just a good time to widen the spread and sell some mortgage paper to get it off the books. The CBC covered the gory details and I quote in part:

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Rising rates push up the average monthly costs faced by homeowners... That's money homeowners won't have to put into other spending, including cars and home improvements.

In the past five months, banks have increased interest rates by more than a third... for most homeowners that means monthly costs are up eight to 10 per cent.

With many Canadians carrying a heavy debt load, rising mortgage rates can make housing less affordable for some families. 

Yesterday, Finance Minister Jim Flaherty said he does not plan to intervene in the housing market and believes Ottawa has taken the steps necessary to calm overheated prices.

The last sentence quoted from Mr Flaherty is funny because after World War II, the Canadian Government got into the business of insuring mortgages to "facilitate access to affordable housing" (Wikipedia) and has been playing footsie with lenders for decades and this current government has been an active agent in shielding lenders from risk. 

Yes, buyers have to take responsibility for assuming historic levels of debt, but our governing policies are at the center of this enormous bubble of debt that requires transformation into equity by repayment or default. 

If mortgage lenders did not have tax payer funded insurance against default, then bad credits and poorly qualified buyers would never be able to bid up prices and housing costs would not go through the roller coaster ride of boom to bust. Instead the bond markets would do their job with Mr Margin working full time controlling risk and there would be no need to have Mother Nature look in on us. But here she is.